The commercial banks on Sunny Island have checking deposits of $4 million, reserves of $600,000, and loans of $2.4 million. The desired reserve ratio is 10 percent. The banks have ________ of desired reserves and ________ of excess reserves.

Question

Quizplus · Accepted Answer

The desired reserves are calculated as 10% of the checking deposits, which is 10% of $4 million = $400,000. The banks have actual reserves of $600,000. Therefore, the excess reserves are the actual reserves minus the desired reserves, which is $600,000 - $400,000 = $200,000.

The Commercial Banks on Sunny Island Have Checking Deposits of $4